Understanding Your Credit Report and Score
A credit report contains your entire credit history, basically any borrowing and repayment of money. Lenders will see everything in your credit report and use the information to base a decision to lend or not lend you money.
Your credit report contains:
Basic information: your name (any previous names), current and previous addresses, telephone number, Social Security Number, date of birth, and most recent employment information.
All credit accounts, open or closed, including: limit (how much you can spend), balance (how much you owe), amount of monthly payment, length you have had account, if the account is joint (and with whom) and if you have made any late payments.
A list of all delinquent accounts: how much you owe, how long the account has been in default and if the account has been sent to a collection agency. Judgments against you: bankruptcy, court-ordered child support, tax liens and any public records.
Companies who have requested your credit report.
Optional: personal statement that you provide to explain your circumstances, which can be helpful if you have negative information on your report.
A credit score, also referred to as a FICO score, is a number based on your credit report that allows lenders to determine your credit-worthiness. The number can range from 300 to 850. This number is used to predict your payment behavior and is an easy way for lenders to decide if they can risk lending you money. Credit scores are not included in credit reports.
The most widely used scoring system was developed by the Fair Issac Corporation, hence FICO score. A credit score is composed of your personal credit information compared to statistical data. The credit score comprises five different categories:
Payment history (35%) – the most important category. Have you made all payments on time and for how long? How many unpaid debts you have that have resulted in alternative action (e.g., bankruptcy, tax liens, collection lawsuits, etc.).
Amounts owed (30%) – how many lines of credit you have and how much you owe compared with how much you can borrow.
Length of credit history (15%) – how long you have had your accounts.
New credit (10%) – how many new lines of credit you have.
Types of credits used (10%) – do you have a balance of revolving (credit cards) and installment (loans) credit lines?
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